Setting Budgets

Setting Budgets

1. Budget = A target amount of money set by a business in a specific period of time

2. Income Budget = A target amount of money to be recieved from sales in a given period of time; this can be set for the business as a whole or specific activity e.g. each store or product

   • May be translated into individual sales targets for staff
   • Informed by market research and sales forecasts
   • Informs cash inflows in the cash flow forecast

3. Expenditure Budget = A target amount of money a business is permitted to spend in a given period of time; this can be set for specific aspects of business activity e.g. marketing, materials or wages

   • A seperate expenditure budget may be set for running costs and start up costs
   • Informs cash outflows in the cash flow forecast
   • Allows for monitoring of underspending as well as overspending

4. Profit Budget = A target amount of profit to be achieved by a business in a specific period of time, calculated based on income budget minus the expenditure budget

   • May be set for the business as a whole or for individual departments, products or branches
   • Within a business plan will be used to highlight the potential and feasibility of the business

5. Reasons for setting a budget include:

   • Important part of a business plan
   • Motivates to meet targets
   • Helps avoid overspending
   • Encourages efficiency
   • Shares responsibility